UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 28, 2019

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to    

Commission file number: 1-14315

 

Cornerstone Building Brands, Inc.

(Exact name of registrant as specified in its charter)

Delaware	76-0127701
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

5020 Weston Parkway	Suite 400	Cary	NC	27513
(Address of principal executive offices)				(Zip Code)

(888) 975-9436

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ý Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	ý	Accelerated filer	☐
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ý No

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock $0.01 par value per share	CNR	New York Stock Exchange

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $0.01 par value - 125,566,409 shares as of October 31, 2019.

TABLE OF CONTENTS 

		PAGE
	Part I — Financial Information
Item 1.	Unaudited Consolidated Financial Statements	1
	Consolidated Statements of Operations for the Three and Nine Months Ended September 28, 2019 and July 29, 2018	1
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 28, 2019 and July 29, 2018	2
	Consolidated Balance Sheets as of September 28, 2019 and October 28, 2018	3
	Consolidated Statements of Cash Flows for the Nine Months Ended September 28, 2019 and July 29, 2018	4
	Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 28, 2019 and July 29, 2018, and the Transition Period ended December 31, 2018	5
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
Item 4.	Controls and Procedures	55
	Part II — Other Information
Item 1.	Legal Proceedings	56
Item 1A.	Risk Factors	56
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 6.	Exhibits	57

i

PART I — FINANCIAL INFORMATION 

Item 1.  Unaudited Consolidated Financial Statements. 

CORNERSTONE BUILDING BRANDS, INC. 

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 28, 2019		July 29, 2018		September 28, 2019		July 29, 2018
Sales	$	1,285,043	$	548,525	$	3,645,332	$	1,426,943
Cost of sales	975,240		415,124		2,844,949		1,097,542
Gross profit	309,803		133,401		800,383		329,401
Selling, general and administrative expenses	154,034		79,039		466,368		228,231
Intangible asset amortization	44,725		2,412		132,699		7,237
Restructuring and impairment charges, net	4,984		(439)		15,522		1,143
Strategic development and acquisition related costs	10,500		3,642		36,668		5,503
Loss (gain) on disposition of business	—		(1,013)		—		5,673
Gain on insurance recovery	—		(4,741)		—		(4,741)
Income from operations	95,560		54,501		149,126		86,355
Interest income	155		48		491		118
Interest expense	(56,549)		(4,572)		(173,134)		(16,913)
Foreign exchange gain (loss)	(616)		(258)		1,084		(92)
Loss on extinguishment of debt	—		—		—		(21,875)
Other income, net	717		345		665		1,072
Income (loss) before income taxes	39,267		50,064		(21,768)		48,665
Provision (benefit) for income taxes	14,103		14,078		(4,448)		13,114
Net income (loss)	25,164		35,986		(17,320)		35,551
Net income allocated to participating securities	(374)		(221)		—		(248)
Net income (loss) applicable to common shares	$	24,790	$	35,765	$	(17,320)	$	35,303
Income (loss) per common share:
Basic	$	0.20	$	0.54	$	(0.14)	$	0.53
Diluted	$	0.20	$	0.54	$	(0.14)	$	0.53
Weighted average number of common shares outstanding:
Basic	125,557		66,335		125,526		66,361
Diluted	125,558		66,438		125,526		66,477

See accompanying notes to consolidated financial statements.

1

CORNERSTONE BUILDING BRANDS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

	Three Months Ended				Nine Months Ended
	September 28, 2019		July 29, 2018		September 28, 2019		July 29, 2018
Comprehensive income (loss):
Net income (loss)	$	25,164	$	35,986	$	(17,320)	$	35,551
Other comprehensive loss, net of tax:
Foreign exchange translation gains (losses)	(1,862)		(68)		4,278		(92)
Unrealized loss on derivative instruments	(6,858)		—		(29,604)		—
Other comprehensive loss	(8,720)		(68)		(25,326)		(92)
Comprehensive income (loss)	$	16,444	$	35,918	$	(42,646)	$	35,459

See accompanying notes to consolidated financial statements.

2

CORNERSTONE BUILDING BRANDS, INC. 

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	September 28, 2019		October 28, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	105,244	$	54,272
Restricted cash	3,872		245
Accounts receivable, less allowances of $9,948 and $6,249, respectively	594,681		233,297
Inventories, net	467,916		254,531
Income taxes receivable	27,641		1,012
Investments in debt and equity securities, at market	3,569		5,285
Prepaid expenses and other	74,882		34,821
Assets held for sale	5,018		7,272
Total current assets	1,282,823		590,735
Property, plant and equipment, less accumulated depreciation of $530,490 and $459,931, respectively	643,844		236,240
Lease right-of-use assets	308,256		—
Goodwill	1,677,929		148,291
Intangible assets, net	1,784,937		127,529
Deferred income taxes	—		982
Other assets, net	10,667		6,598
Total assets	$	5,708,456	$	1,110,375
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	25,600	$	4,150
Note payable	—		497
Payable pursuant to a tax receivable agreement	24,760		—
Accounts payable	235,247		170,663
Accrued compensation and benefits	84,951		65,136
Accrued interest	31,996		1,684
Accrued income taxes	18,137		11,685
Current portion of lease liabilities	68,993		—
Other accrued expenses	254,833		81,884
Total current liabilities	744,517		335,699
Long-term debt	3,267,646		403,076
Deferred income taxes	244,062		2,250
Long-term lease liabilities	243,624		—
Other long-term liabilities	280,722		39,085
Total long-term liabilities	4,036,054		444,411
Stockholders’ equity:
Common stock, $0.01 par value; 200,000,000, 125,621,510 and 125,566,409 shares authorized, issued and outstanding at September 28, 2019, respectively; and 100,000,000, 66,264,654 and 66,203,841 shares authorized, issued and outstanding at October 28, 2018, respectively	1,257		663
Additional paid-in capital	1,247,026		523,788
Accumulated deficit	(283,159)		(186,291)
Accumulated other comprehensive loss, net	(36,139)		(6,708)
Treasury stock, at cost (55,101 and 60,813 shares at September 28, 2019 and October 28, 2018, respectively)	(1,100)		(1,187)
Total stockholders’ equity	927,885		330,265
Total liabilities and stockholders’ equity	$	5,708,456	$	1,110,375

See accompanying notes to consolidated financial statements.

3

CORNERSTONE BUILDING BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
	Nine Months Ended
	September 28, 2019		July 29, 2018
Cash flows from operating activities:
Net income (loss)	$	(17,320)	$	35,551
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	191,485		30,974
Non-cash interest expense	6,233		1,140
Loss on extinguishment of debt	—		21,875
Share-based compensation expense	10,613		8,909
Loss on disposition of business, net	—		5,092
Gain on insurance recovery	—		(4,741)
Non-cash fair value premium on purchased inventory	16,249		—
Gains on asset sales, net	(335)		(875)
Provision for doubtful accounts	(492)		(177)
Deferred income taxes	(45,192)		(1,676)
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable	(138,329)		(13,512)
Inventories	63,327		(64,882)
Income taxes	1,256		2,446
Prepaid expenses and other	(4,374)		(3,686)
Accounts payable	8,486		34,567
Accrued expenses	(21,005)		6,088
Other, net	(2,783)		(185)
Net cash provided by operating activities	67,819		56,908
Cash flows from investing activities:
Acquisitions, net of cash acquired	(179,184)		—
Capital expenditures	(86,364)		(34,867)
Proceeds from sale of property, plant and equipment	873		6,338
Business disposition, net	—		(1,426)
Proceeds from insurance	—		4,741
Net cash used in investing activities	(264,675)		(25,214)
Cash flows from financing activities:
Proceeds from stock options exercised	—		1,279
Proceeds from ABL facility	290,000		85,000
Payments on ABL facility	(120,000)		(85,000)
Proceeds from term loan	—		415,000
Payments on term loan	(12,810)		(145,184)
Payments on senior notes	—		(265,470)
Payments on note payable	—		(1,245)
Payments of financing costs	—		(6,521)
Payments related to tax withholding for share-based compensation	(231)		(5,048)
Purchases of treasury stock	—		(46,705)
Net cash provided by (used in) financing activities	156,959		(53,894)
Effect of exchange rate changes on cash and cash equivalents	1,406		(92)
Net decrease in cash, cash equivalents and restricted cash	(38,491)		(22,292)
Cash, cash equivalents and restricted cash at beginning of period	147,607		65,794
Cash, cash equivalents and restricted cash at end of period	$	109,116	$	43,502

See accompanying notes to consolidated financial statements.

4

CORNERSTONE BUILDING BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
Fiscal Quarters and Transition Period	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Stockholders’ Equity
	Shares	Amount								Shares	Amount
Balance, June 29, 2019	125,588,427	$	1,256	$	1,243,897	$	(308,323)	$	(27,419)	(69,315)	$	(1,207)	$	908,204
Treasury stock purchases	—	—		—		—		—		(12,612)	(64)		(64)
Retirement of treasury shares	(26,826)	—		(171)		—		—		26,826	171		—
Issuance of restricted stock	46,178	1		(1)		—		—		—	—		—
Issuance of common stock for the Ply Gem merger	13,731	—		167		—		—		—	—		167
Other comprehensive loss	—	—		—		—		(8,720)		—	—		(8,720)
Share-based compensation	—	—		3,134		—		—		—	—		3,134
Net income	—	—		—		25,164		—		—	—		25,164
Balance, September 28, 2019	125,621,510	$	1,257	$	1,247,026	$	(283,159)	$	(36,139)	(55,101)	$	(1,100)	$	927,885
Transition Period Beginning Balance, October 28, 2018	66,264,654	$	663	$	523,788	$	(186,291)	$	(6,708)	(60,813)	$	(1,187)	$	330,265
Treasury stock purchases	—	—		—		—		—		(347,040)	(4,128)		(4,128)
Retirement of treasury shares	(296,954)	(3)		(3,634)		—		—		296,954	3,637		—
Issuance of restricted stock	977,226	10		(10)		—		—		—	—		—
Issuance of common stock for the Ply Gem merger	58,638,233	586		712,455		—		—		—	—		713,041
Other comprehensive loss	—	—		—		—		(4,105)		—	—		(4,105)
Share-based compensation	—	—		4,457		—		—		—	—		4,457
Cumulative effect of accounting change	—	—		—		(3,358)		—		—	—		(3,358)
Net loss	—	—		—		(76,190)		—		—	—		(76,190)
Transition Period Ending Balance, December 31, 2018	125,583,159	$	1,256	$	1,237,056	$	(265,839)	$	(10,813)	(110,899)	$	(1,678)	$	959,982
Balance, April 29, 2018	66,252,112	$	663	$	521,190	$	(249,832)	$	(7,555)	(109,793)	$	(2,142)	$	262,324
Treasury stock purchases	—	—		—		—		—		(21,940)	(436)		(436)
Retirement of treasury shares	(22,044)	—		(457)		—		—		22,044	457		—
Issuance of restricted stock	12,657	—		—		—		—		—	—		—
Stock options exercised	21,788	—		239		—		—		—	—		239
Other comprehensive loss	—	—		—		—		(68)		—	—		(68)
Deferred compensation obligation	—	—		(954)		—		—		48,876	954		—
Share-based compensation	—	—		1,041		—		—		—	—		1,041
Net income	—	—		—		35,986		—		—	—		35,986
Balance, July 29, 2018	66,264,513	$	663	$	521,059	$	(213,846)	$	(7,623)	(60,813)	$	(1,167)	$	299,086

5

See accompanying notes to consolidated financial statements.

CORNERSTONE BUILDING BRANDS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
(In thousands, except share data)
(Unaudited)
Fiscal Year to Date Periods	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Stockholders’ Equity
	Shares	Amount								Shares	Amount
December 31, 2018	125,583,159	$	1,256	$	1,237,056	$	(265,839)	$	(10,813)	(110,899)	$	(1,678)	$	959,982
Treasury stock purchases	—	—		—		—		—		(34,724)	(231)		(231)
Retirement of treasury shares	(84,810)	(1)		(722)		—		—		84,810	723		—
Issuance of restricted stock	109,430	2		(2)		—		—		—	—		—
Issuance of common stock for the Ply Gem merger	13,731	—		167		—		—		—	—		167
Other comprehensive loss	—	—		—		—		(25,326)		—	—		(25,326)
Deferred compensation obligation	—	—		(86)		—		—		5,712